According to the Forestry Commission, the woodland area of the UK is 3.19m hectares, of which 44% is sustainably managed. It covers 13% of the total land area in the UK: 10% in England, 15% in Wales, 19% in Scotland and 8% in Northern Ireland. This is the lowest overall amount in Europe, which averages 37% coverage.

A total of 13,400 hectares of new woodland was created in the UK in 2018/19. Of that, Scotland was the most productive, planting 11,210 hectares. England planted 1,400 hectares and Wales 600 hectares.

They are much needed because according to the Forestry Commission there will be a 30% decline in timber availability after 2030 in the UK.

The Gross Value Added in forestry and processing is worth £2.18bn. In 2019 there was a 23% year-on-year rise in average forestry values to £11,478 per stocked hectare.

However, for the second year in a row, the increased market value was against a backdrop of falling supply, with a gross area of 14,750 hectares traded some 18% below the medium-term average.

A total of £126.5m of forest properties were sold, made up of 81 separate transactions. This was ahead of the £104.2m sold in 2018 from 57 sales. Over three quarters, 78%, were sold in Scotland in 2019, with 11% each in England and Wales.

There was a decrease in the average size of sold forestry property, from 196 hectares in 2018 to 136 hectares. The average cost was £1.56m, down from £1.83m in 2018.

“The competition for forestry property is becoming fiercer as prices rise,” says James Adamson, head of forestry investment UK at Savills. “There is limited supply of forestry in the UK on the market and strong demand. Indeed, probably five times the demand for available supply. The increasing timber price underpins the value. This isn’t Center Parcs. People are attracted to often ugly, industrialised forests by the economics of timber.”

Source: The UK Forest Market Report/John Clegg & Co, Strutt & Parker, Tilhill Forestry

In 2018, there was the third highest percentage rise – 46.2% – in UK timber prices recorded during the last 35 years. The Coniferous Standing Sales Price Index for the UK was 26.8% higher in the year to March 2019, compared with 2018. The Softwood Sawlog Price Index was 32.5% higher in the six months to March 2019.

The Forestry Commission said 11.6m green tonnes of UK softwood and hardwood were sold to primary wood processors – sawmilling, panels and pulp and paper in 2018 – up 3% on 2017. Other drivers of demand include biomass plants and house building.

Despite the production increase, wood products imported into the UK in 2018 were valued at £8.3bn, including sawn wood, wood-based panels, wood pellets and paper. This makes the UK the second largest net importer of forest products behind China.

Source: Forest Research 2019

Natural capital is increasing in interest, including utility companies looking at tree planting on their estates as a way to improve water quality.

Woodland area is also being used for carbon sequestrations, with 187 projects presently validated to the Woodland Carbon Code standard. The 8,300 hectares are projected to sequester 3.4m tonnes of carbon dioxide over their lifetime.

One example is Royal Dutch Shell, which is working with Forestry and Land Scotland to plant or regenerate a million trees over the next five years to offset sales of petrol and diesel at UK service stations.

“It’s still quite experimental and it’s not clear how it’s going to impact on the investment market,” says Adamson. “But I’ve had more conversations about this in 2019 than the last 10 years put together. Investors are looking at the direction of travel, but it is more about creating new forests out of agricultural land rather than existing forests.”

Source: Forest Research 2019

The agriculture sector is being encouraged to develop more woodland. The area of farm woodland has increased from 0.7m hectares in 2009 to 1m hectares in 2018, aided by grants of up to £6,800 per hectare to help farmers make the move. Just over half the new coverage – 52% – is in Scotland.

“Farmers who are concerned about business sustainability and the future of sheep farming are increasingly looking to forestry for some business diversification. Forestry isn’t an either/or business. It can easily be incorporated into an existing agricultural portfolio,” says Jason Hubert, Scottish Forestry’s head of business development.

These tend to be smaller in size and have a wider variety of species than the conifer-dominated commercial forests. Forestry agents John Clegg & Co, in its UK Forest Market Report 2019, said mixed woodlands are attracting a new class of environmentally minded investor. Average sale price of £4,286 per acre in 2019 is up 6.5%.

There were 437m visits to woodlands in England in 2017/18 and 117m visits in Scotland. In 2019, 63% of the population visited woodland mainly for health, exercise and fresh air. That’s up from 61% in 2017.

“We’re seeing an increase in lifestyle investors – including Scottish ex-pats – buying a small piece of woodland with a view to improving their own carbon footprint and to provide a place for recreation. They then become quite actively involved in the management and, thanks to the Scottish government’s new ‘hutting’ legislation, some are even building cabins within their woodland,” says David Robertson, director of investment and business development at Scottish Woodlands.

All this activity means money does literally grow from trees. During the 2018 forest year, the total value of the UK forestry investment market increased to £118m, up from £112m in 2017. Currently, 73% of woodland in the UK is privately owned.

Tax plays a big part in the attraction as, after two years, commercial forests are entitled to 100% business-property relief and sales incur no capital gains tax. In addition, standing timber (timber that has not been cut or sold) carries relief from inheritance tax.

“Traditionally, investors would come into forestry for its generous tax advantages and to preserve wealth. But we are seeing very focused longer-term commercial and institutional investors, such as insurance firms and large company pension schemes, coming back into the market,” says Robertson.

“They see forestry as a global asset with lots of positive value drivers. That’s mainly because the worldwide demand for wood is set to triple by 2050, including a huge need for timber in developing countries. Companies are also keen to meet their ESG [environmental, social and governance] targets, reduce carbon emissions and, because of Brexit uncertainty, naturally see comfort in land-based assets.”

The total return for UK investors in 2017 was 13.9%, up from 9.9% in 2016, according to the IPD UK Forestry Index.

In 2017, 16,000 people were employed in forestry and 27,000 in primary wood processing.

“Anyone coming out of college now with a good forestry degree will be lapped up by the management companies. The sector is crying out for young people, particularly in the harvesting side of things, and this is being addressed through the modern apprenticeships programme,” says Hubert. “We’re optimistic about the depth of quality skills in forestry.”

Price and values

Forestry prices and values are expected to remain strong. “We are coming into a period of undersupply of timber in the UK because we stopped planting after the 1988 budget, when tax incentives were changed,” explains Robertson.

“At that stage, we were planting 26,000 hectares a year and by 2010 that was down to 2,600. We’re growing those numbers again, but undersupply of domestic timber is looming from the mid-2030s. This is during a time that we foresee demand will increase as a result of more timber-based housebuilding and also with developing nations competing for supplies. In our view this is likely to lead to very positive returns in forestry into the future.”

Planting

It will continue apace, with the Scottish government setting a target of 15,000 hectares per year by 2024/25 – that is 33m trees.

Scotland also wants to increase the use of Scottish wood products in construction from 2.2m cubic metres to 3m by 2031/32. The Welsh government wants 100,000 hectares of new woodland by 2030. It says this will have a net value of up to £8.6bn.

The Committee on Climate Change says 1.5bn trees or 30,000 hectares are needed in the UK every year until 2050. Of that, 15% of cropland should be turned to tree planting and growing plants for fuel.